Specialty Cookie Company: Costing Methods and Business Decisions

by | Aug 18, 2024 | Accounting

In this project, you will be opening your own specialty cookie company to see how product costing methods and changes in production affect business decisions. You will be creating a series of reports and analyzing the results using the template provided to guide you through the project.

The learning objectives of this project are as follows:

Gain an understanding of product costing (direct materials, direct labor, and overhead).
Review job order costing.
Review process costing.
Make business decisions based on analyzing accounting data.
Details:

First, start the paper with an abstract and introduction section per the assignment template provided above.

Part 1: Establish a cookie business selling only one type of specialty cookie with two employees making the cookies.

Create a name and establish a location for the business.
Construct a mission statement for the business.
Decide on the type of cookie you want to make and sell.
Part 2: Develop costing and sales information for 1,000 cookies (this is the first and only order).

Estimate and explain the cost per cookie based on job order costing (manufacturing overhead is 30% of direct labor costs). Prepare a job order cost sheet by researching and identifying the top five ingredients and their estimated costs as your direct materials. Research and identify the cost of wages for your two employees as your direct labor. It typically takes two days to make 1,000 cookies.
For process costing, examine the costs per 1,000 cookies looking at these top three processes (departments): Mixing, Add-ins, Packaging.
The Mixing Department will be examined in depth (only do this department).
All materials will be added in at the beginning of the process.
The cookies will be in the Mixing Department for a total of 8 hours (use two employees, 4 hours each as your direct labor). The cookies will be 100% complete with respect to materials, and only be 40% complete with respect to conversion costs (labor and overhead) before they are transferred to the Add-ins Department. Manufacturing overhead is 30% of direct labor costs.
Estimate and explain the sales price you plan to set per cookie based on the cost data.
Part 3: Compare and contrast the costing methods used in this project (job order vs. process costing), including which you believe provides the most useful information as a manager.

Part 4: Discuss what will happen to revenue if the number of the cookies sold increases or decreases.

End this paper with the key observations and present any future recommendations. Use the for your job order, and process costing spreadsheets to be embedded in your case study document.

Sample solution

Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell. 

In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.


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God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.

Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.

To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.

 

References

Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.

Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.

Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.

Sample Answer

Sample Answer

 

Specialty Cookie Company: Costing Methods and Business Decisions

Abstract

This project explores the establishment of a specialty cookie company focusing on understanding product costing methods, specifically job order and process costing. It analyzes the costs associated with the production of 1,000 cookies, including direct materials, direct labor, and manufacturing overhead. The project also examines the implications of various costing methods on managerial decision-making and revenue generation based on variations in sales volume. Through this analysis, key observations and future recommendations for the business will be provided.

Introduction

In a rapidly evolving culinary market, specialty cookies have carved out a niche that appeals to gourmet enthusiasts and casual consumers alike. This project outlines the establishment of “Sweet Sensations,” a cookie company located in Portland, Oregon, focused on producing high-quality gourmet chocolate chip cookies. The mission of Sweet Sensations is to create a memorable cookie experience using premium ingredients while fostering a sustainable business model that supports local suppliers. Understanding product costing is vital for the success of Sweet Sensations, as it informs pricing strategies and operational efficiencies. This paper will explore both job order and process costing methods, assess their applicability, and discuss their impact on revenue based on varying sales volumes.

Part 1: Establishing the Cookie Business

Business Name: Sweet Sensations
Location: Portland, Oregon
Mission Statement: “To delight our customers with exceptional gourmet cookies made from the finest ingredients, while promoting sustainability and supporting our local community.”
Type of Cookie: Gourmet Chocolate Chip Cookies

Part 2: Costing and Sales Information for 1,000 Cookies

Job Order Costing

For the production of 1,000 gourmet chocolate chip cookies, we will determine the cost per cookie based on job order costing.

Direct Materials

The top five ingredients and their estimated costs are as follows:

1. All-purpose flour (10 lbs) – $5.00
2. Butter (5 lbs) – $10.00
3. Brown sugar (3 lbs) – $6.00
4. Granulated sugar (2 lbs) – $2.50
5. Chocolate chips (2 lbs) – $8.00

Total Direct Materials Cost:
$5.00 + $10.00 + $6.00 + $2.50 + $8.00 = $31.50

Direct Labor

Assuming an hourly wage of $15 for each employee:

– Total hours worked: 2 employees x 8 hours = 16 hours
– Direct Labor Cost: 16 hours x $15/hour = $240

Manufacturing Overhead

Manufacturing overhead is calculated as 30% of direct labor costs:

– Overhead Cost: 30% x $240 = $72

Total Cost Calculation

Total Costs = Direct Materials + Direct Labor + Manufacturing Overhead
Total Costs = $31.50 + $240 + $72 = $343.50

Cost per Cookie:
Cost per cookie = Total Costs / Number of Cookies
Cost per cookie = $343.50 / 1,000 = $0.3435 (approximately $0.34)

Process Costing

For process costing, we will focus on the Mixing Department.

Mixing Department Costs:

– Direct Materials (100% complete): $31.50
– Direct Labor (40% complete): – Labor for Mixing = 4 hours x 2 employees x $15/hour = $120 (40% complete)
– Conversion Costs = $120 x 40% = $48

– Manufacturing Overhead (30% of direct labor): – Overhead for Mixing = 30% x $120 = $36

Total Costs for Processing in Mixing Department:

Total Costs = Direct Materials + Direct Labor + Manufacturing Overhead
Total Costs = $31.50 + $48 + $36 = $115.50

Cost per Cookie in Mixing Department:
Cost per cookie = Total Costs / Number of Cookies
Cost per cookie = $115.50 / 1,000 = $0.1155 (approximately $0.12)

Sales Price Estimation

To ensure profitability while remaining competitive, we might set the sales price at a markup of 100% over the total cost per cookie calculated from job order costing.

Sales Price per Cookie:
Sales Price = Cost per cookie x 2
Sales Price = $0.34 x 2 = $0.68

Part 3: Comparison of Costing Methods

Job order costing is often more suitable for businesses that produce distinct products or batches, providing detailed tracking of costs associated with specific orders. In contrast, process costing aggregates costs across departments and is more effective for mass production scenarios where products are homogeneous.

For Sweet Sensations, job order costing offers actionable insights into individual orders, which is beneficial for managing unique customer requests or special events. Conversely, process costing focuses on efficiency within the Mixing Department, allowing management to identify areas for cost reduction in a standardized production environment.

In conclusion, while both methods provide valuable information, job order costing may be more useful for managerial decision-making at Sweet Sensations due to its ability to track specific costs associated with individual cookie batches.

Part 4: Impact of Sales Volume Changes on Revenue

The revenue generated by Sweet Sensations will be directly influenced by changes in sales volume. If sales increase beyond the initial order of 1,000 cookies, revenue will rise proportionally as long as fixed costs remain constant, allowing for greater profitability per unit sold due to economies of scale.

Conversely, if sales decrease, the company may struggle to cover fixed costs, potentially leading to losses. Therefore, Sweet Sensations should implement effective marketing strategies to maintain customer interest and encourage repeat purchases.

Conclusion and Future Recommendations

This analysis has highlighted the importance of understanding product costing methods—job order and process costing—in making informed business decisions at Sweet Sensations. Key observations include:

– Job order costing provides detailed insights into individual orders beneficial for customization.
– Process costing aids in identifying cost efficiencies in production.
– Revenue is sensitive to fluctuations in sales volume; strategic marketing approaches are essential to sustain profitability.

Future Recommendations:
Sweet Sensations should consider expanding its product line to include seasonal or limited-edition flavors to attract a wider customer base. Additionally, investing in marketing campaigns can help increase brand visibility and drive sales growth.

By strategically leveraging these insights and recommendations, Sweet Sensations can position itself for sustained success in the competitive specialty cookie market.

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